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Pros and Cons of a term deposit

two people on cliffs shouting to each other about term deposits

Wondering if you should lock your cash up in a term deposit? While there are a lot of benefits to getting a fixed interest rate on your savings, there are also a few disadvantages to making your savings illiquid.

It’s a good idea to get a well-rounded picture of term deposits. By looking at both the pros and cons, you can get an idea if a term deposit will work for you or not. 

To help you decide, we’ve compiled a list of pros and cons so you can get a good idea of whether they work for you.

Term deposit pros

Term deposits come with a couple of key advantages. Some of the things that can make term deposits ideal for you are:

  • Interest rate certainty. A term deposit ensures your money will earn interest at a fixed rate, for a fixed term. There’s little to no chance of losing your money, so it’s a good option for cautious savers.
  • It’s low maintenance. Once you lock your cash away in a term deposit, there’s not a lot you can do with it until the term is up. So it makes for a great out-of-sight-out-of-mind saving plan.
  • No service or startup fees. One of the best things about a term deposit is that as long as you don’t withdraw early, it’s entirely fee-free.
  • Protected from slumps in the market. Since term deposits have a fixed interest rate, even if market interest rates are in free fall, your savings will keep earning the same level of interest.
  • Impulse spending control. Are you a bit of an impulse spender? Once your money is in a term deposit, hefty penalties apply for taking it out early, so it can actually help curb bad spending habits.

Term deposit cons

While fixed interest rates and inaccessibility can lead to some advantages with term deposits, they also come with a few downsides. Some of these include:

  • Your money isn’t accessible. Once you lock your money away, you won’t get access to it until the end of the term (which can vary from 3 months up to 5 years). If you need to withdraw your money from a term deposit before maturation, you’ll wind up paying a penalty fee, plus your interest rate will be reduced.
  • No extra deposits. You’ll need to make a lump sum deposit when you open your term deposit, and there’s no option to add to your savings as you go. One way you can combat this is by taking out shorter terms and depositing saved cash with the rollover.
  • Less flexibility. A term deposit is low risk – but the flip side is that it’s not a very flexible savings option. Other products with comparable rates, such as high interest savings accounts, offer much more in terms of flexible features and options.
  • No bonus interest. Some savings accounts have introductory or bonus interest rates that allow you to earn a higher rate based on the conditions set. Term deposits generally don’t have this. However, banks like Judo do offer a loyalty bonus rate
  • Rollover terms are often less competitive. If you forget to make plans for your money after your term deposit matures, it could roll over into another term. This rollover term often comes with a rock-bottom interest rate attached, and you’ll have to pay the early withdrawal penalty to get out of it.
  • Won’t benefit from rises in the market. While fixed interest rates can be great in a market with falling interest rates, they can also mean 

Is a term deposit safe?

Term deposits tend to be a low-risk way of saving money as you get a guaranteed interest rate for the term you’ve chosen. While this means you miss out on higher interest rates if the market rises, it also means you get the certainty of return throughout the length of the term.

It’s also a safe investment because the Australian government guarantees deposits of up to $250,000, as long as it’s with an Authorised Deposit-taking Institution (which essentially means a bank, credit union or other financial provider). This means that even if your bank goes belly up, you won’t lose any money within this threshold.

Each ADI is guaranteed up to $250,000 for each customer – so if you’re lucky enough to be putting away more than that, you might want to think about spreading it across a couple of different banks to stay under the threshold.

Is a term deposit worth it?

That all depends on your savings style and needs, but a term deposit might be worth it if you are looking for:

  • A safe, cash only investment. A term deposit is free of the risks that come with investing strategies like share trading.
  • An easy way to start saving. Low maintenance and safe, a term deposit is a great way for novice savers to start out.
  • Somewhere to stash a lump sum of money you don’t need soon. Got a Christmas bonus or maybe an inheritance? If it’s not part of your day-to-day budget, a term deposit might be the perfect place to stash it away.
  • A strategy to meet set future goals. Are you saving to buy a car in three months, or for a deposit on a home loan in two years? By putting your nest egg away in a term deposit, you’ll avoid the temptation of spending it before you reach your goal.
  • A long term solution. Term deposit interest rates change all the time. If you’re looking for a long term solution that can ride the ups and downs of the market for years to come, a lengthier term deposit could be it.

Is a term deposit better than a savings account?

It generally depends on the kind of saver that you are or what your personal needs might be. A term deposit gives you more interest rate certainty but it lacks flexibility as early withdrawals will incur a fee and usually 30 days notice. This means that a term deposit is more useful if you have a solid budget and an easily accessible emergency fund.

A savings account, on the other hand, has a variable interest rate. This means that it can be particularly useful for you during an interest rate hike cycle as the benefit will quickly carry over—just keep in mind that this holds true for cuts too. However, if you prefer to have your savings on hand and ready to access, then a savings account could be preferable.  

For a full comparison of the two account types, check out our dedicated guide to term deposits vs savings accounts.

Find a term deposit

If all the advantages to having a term deposit have convinced you it’s the savings strategy for you, then here’s how to find the best offer:

First, head over to our term deposit comparison page to find the best offers from across the market.

Next, narrow it down with our term deposit search tool, which will show you results applicable to your deposit amount and desired term.

Compare term deposits - last updated 28 May 2024

Search promoted term deposits below or do a full Mozo database search. Advertiser disclosure
  • Mozo Expert Choice Badge
    Term Deposit

    5.00% p.a.
    1 year


    Yes up to $250,000

    Enjoy a competitive fixed interest with the choice of 1 month to 5 year terms. Start with as little as $1,000. Interest paid monthly, quarterly, half yearly or yearly. Receive a 0.10% loyalty bonus when you automatically reinvest your Term Deposit before maturity. (Terms and Conditions apply)

  • Online Term Deposit

    5.00% p.a.
    1 year


    Yes up to $250,000

    No set-up or account keeping fees. Deposits up to $250,000 per customer are guaranteed by the Australian Government. Mozo Experts Choice winner for Term Deposit 2022.

  • Term Deposit

    4.90% p.a.
    6 months


    Yes up to $250,000

    Competitive fixed rates across investment terms ranging from 1 month to 5 years. No set up or establishment fees. $1000 minimum investment.

Cameron Thomson
Cameron Thomson
Money writer

Cameron has a Bachelor of Creative Writing and History, and a background in broadcast media from his time at 2SER Radio. This diverse set of skills has informed his analytical yet creative approach to dissecting financial data and uncovering long-term trends in consumer finance. Cameron is RG146 certified for Generic Knowledge and keeps a keen eye on current and historical deposit and savings rates on the Mozo database. Cameron is also interested in tracking the investment space, particularly share trading platforms, to help Aussie consumers save and invest their money more wisely.

* Different interest rates apply to different amounts or different interest payment frequencies.

^See information about the Mozo Experts Choice Term Deposit Awards

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